Can you delay a RRIF withdrawal?

Can you convert an RRSP to a RRIF based on a spouse’s age?

One must convert a RRSP to a RRIF in the year the owner, not the contributor (in the case of a spousal RRSP), turns age 71. The conversion can happen anytime throughout the year, and it doesn’t have to happen before the owner’s birthday of that year. Also, even though you must do the conversion the year you turn age 71, it is not until the next year, when you turn 72, that you must draw money from the RRIF.

Ted, this means you can delay your RRIF withdrawal to age 72, and your wife doesn’t have to convert her spousal RRSP to a spousal RRIF until the year she turns 71.

What happens if you miss the RRIF deadline?

If you don’t get around to converting your RRSP to a RRIF by the deadline, the financial institution administering the RRSP will automatically do it for you. But don’t let this happen. It is possible the beneficiaries or successor owners named on the RRSP will not carry over to the RRIF if you ignore the conversion. Doing it yourself allows you to avoid this error.

How to determine RRIF withdrawal amounts

Once you have a RRIF, you are required to withdraw a minimum amount every year. That amount is based on two things: the value of your RRIF at the start of the year and your age.

Ted, at age 72, you are required to withdraw a minimum of 5.4% of the starting year value of your RRIF, and if you base it on your wife’s age of 65, the minimum is 4%. The advantage of using the age of the younger spouse is that you can draw a little less money, which lowers your annual tax, and if you need more money, you always have the option to draw more. 

As you get older, the percentage you must withdraw gets larger until age 95, when it tops out at 20%. Because the minimum withdrawal amount is based on two variables that change each year, your age and the RRIF value, the minimum amount you receive each year will change. 

How often can you withdraw from a RRIF?

Converting your RRSP to a RRIF also means deciding on the frequency of your withdrawals, which can be monthly, quarterly, annually—almost as often as you want. Nothing is fixed, and you can make changes at any time. Set your RRIF payments to the minimum if you are not sure on your needs, because again, you can always request more money if needed. Just remember there’s withholding tax. 

Taxes on RRIF withdrawals

There is withholding tax on a RRIF, just like with an RRSP withdrawal, but with a difference. In the second calendar year of a RRIF, there is no withholding tax on the minimum withdrawal, only the amount over the minimum. (If you open a RRIF in December, January would be the second year having the RRIF.)